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The Indiana Court of Appeals of Indiana affirmed summary judgment in favor of an insurance company following a contracting company’s claim of lost tools.
W.W. Contracting Inc. had an employee who allowed the company to store some tools on a piece of real estate the employee owned in Tippecanoe County. In exchange, W.W. allowed the employee to use the tools for “side work” in his own name.
In March 2019, after the employee stopped working for W.W., the company demanded the worker return the tools stored on his property. W.W. alleges the worker refused and then reported the tools as “stolen” to the Tippecanoe County Sheriff’s Department and sued the worker.
The worker eventually returned what he claimed were all of W.W.’s tools. But upon inventorying the items, W.W. alleged that “a lot of tools” were missing. W.W. then submitted an insurance claim to its insurance company alleging the worker stole the missing tools.
W.W. Contracting, Inc. was named as the insured on a commercial general liability insurance policy issued by Pekin Insurance. The policy covered “accidental loss” to W.W.’s tools but also had a few exclusions.
The insurer investigated W.W.’s insurance claim by interviewing W.W.’s owner Doug Williams and the worker about the loss. The worker denied having W.W.’s missing tools, but Williams insisted that the worker never returned them. Williams assumed the tools were still in the worker’s possession, but did not “know that for a fact.”
The insurer was not able to determine if worker took W.W.’s tools but concluded that W.W.’s loss was excluded from the policy’s insurance coverage. The insurer denied the claim based on either the dishonest act/entrusted person exclusion or the unexplained disappearance exclusion.
In response, W.W. then sued the insurer for breach of contract claiming worker’s alleged theft of the tools was an accidental loss for which the policy covered. The insurer moved for summary judgment and the Tippecanoe Superior Court granted the motion.
The first issue on appeal was whether the insurance company was required to prove the occurrence of a dishonest act when moving for summary judgment based on the subject exclusion because W.W. alleged a dishonest act as its basis for coverage.
The appellate court found W.W.’s theft allegation established the dishonest act.
“This case presents the seemingly unique circumstance in which the insured’s cause of action and the insurer’s affirmative defense effectively have an element in common. Had W.W. claimed its loss was caused by something other than a dishonest act, the Insurer would have had the burden of proving both the dishonest act and entrusted person elements of its affirmative defense,” Judge Leanna Weissmann wrote.
The second issue on appeal was whether the exclusion requires only a casual connection between the act of entrustment and the resulting loss and thus W.W.’s demand that its former employee return its tools did not render the exclusion inapplicable.
The court also found that the former employee was a person entrusted with W.W.’s tools thus the act of entrustment in the insurance policy applied.
“By entrusting its tools to [the employee], W.W. placed its confidence in [the employee] not to steal the tools. This misplaced confidence resulted in W.W.’s loss,” Weissmann wrote. “The fact that W.W. no longer had confidence in [the employee] at the time of his alleged theft is irrelevant under the terms of the Policy.”
The appellate court affirmed the trial court’s entry of summary judgment in favor of the insurer on W.W.’s breach of contract claim.
Chief Judge Robert Altice and Judge Dana Kenworthy concurred in Doug Williams and W.W. Contracting Inc. v. Pekin Insurance Inc., 23A-PL-995.
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